ISS Updates Benchmark Voting Policies for 2021

Proxy advisor Institutional Shareholder Services (ISS) has recently updated its 2021 benchmark voting policies. Highlights from the ISS Executive Summary include:

• A new voting policy on board racial and ethnic diversity. In 2021, ISS research reports will highlight boards of companies in the Russell 3000 or S&P 1500 that lack racial and ethnic diversity (or whose proxy statements lack disclosure regarding the diversity of its boards). Beginning in 2022, ISS will recommend voting against the chair of the nominating committee, or other directors on a case-by-case basis, of Russell 3000 or S&P 1500 companies with no apparent racial or ethnic board diversity, and no "mitigating factors." Mitigating factors may include a racial or ethnically diverse board member at the preceding annual meeting and a firm commitment to appoint at least one racially and/or ethnically diverse member in the future. Under the new policy, a lack of racial and ethnic diversity will not affect ISS’ 2021 voting recommendations on directors.
• Updated policy on exclusive forum provisions in charter or bylaws. Following the Sciabacucchi decision, ISS has updated its policy to generally recommend a vote in favor of federal forum selection provisions that specify "the district courts of the United States" as the exclusive forum for federal securities law matters, and to recommend a vote against provisions that restrict the forum to a particular federal district court.
• New focus on ESG in director elections. ISS expressed its view that significant risk oversight failures related to environmental and social concerns may constitute material governance failures, which might trigger voting recommendations against board members.

While not all of our clients subscribe to the notion that compliance with ISS' views is essential, their policy views tend to be a good leading indicator of what the institutional shareholder community finds to be important. As a result, we recommend that boards and committees consider these points in their internal governance discussions.